Note 6 - Asset Retirement Obligations

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Asset Retirement Obligation Disclosure [Text Block]

6.

Asset Retirement Obligations

Asset retirement obligations associated with the retirement and decommissioning of tangible long-lived assets are required to be recognized as a liability in the period in which a legal obligation is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset.  The cost of the tangible asset, including the initially recognized ARO, is depleted such that the cost of the ARO is recognized over the useful life of the asset.  The fair value of the ARO is measured using expected cash outflows associated with the ARO, discounted at our credit-adjusted risk-free rate when the liability is initially recorded.  Accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value.

The following table is a reconciliation of our ARO (in thousands):

	Year Ended December 31,
	2019			2018
Asset retirement obligations, beginning of period	$	310,137		$	300,446
Liabilities settled		(11,443	)		(28,617	)
Accretion of discount		19,460			18,431
Liabilities incurred and assumed through acquisition		29,887			4,286
Revisions of estimated liabilities (1) (2)		7,553			15,591
Asset retirement obligations, end of period		355,594			310,137
Less current portion		21,991			24,994
Long-term	$	333,603		$	285,143

( 1 ) Revisions in 2019 were due to changes in scope, weather impact, revisions to actual expenses versus estimates and revisions related to non-operated properties. 

( 2 ) Revisions in 2018 reflect cost estimate increases as a result of new data on the required scope of work becoming available to us through 2018. This new data included data realized during the planning phase of the projects, and as the projects proceeded through the execution phase. This new data indicated that the scope was larger and more difficult than the scope used for end of 2017 estimates. As an example, larger heavy lift vessels would be needed for certain platform removals, and certain wells needed additional well plugging operations to complete the decommissioning per agency requirements.